Highlights of
Report Number: †2007-30-056 to the
Internal Revenue Service Deputy Commissioner for Services and Enforcement.

IMPACT ON TAXPAYERS

During this annual review, TIGTA analyzes information from
the Internal Revenue Serviceís (IRS) management information system reports to
determine the trends and changes in the major areas of compliance.† Overall, many compliance activities increased
and results improved during Fiscal Year 2006.†
Continued effort to improve compliance is important to maintaining the
integrity of the voluntary tax compliance system.

WHY TIGTA DID THE AUDIT

This audit
was initiated at the request of the IRS Oversight Board to provide statistical
information and trend analyses of that information.† Data were obtained from various IRS management
information systems.†

WHAT
TIGTA FOUND

Many
compliance activities increased and results improved during Fiscal
Year 2006.† Since Fiscal
Year 2000, the IRS has been reversing many of the downward trends in
compliance activities that had occurred in prior years.† Some of the positive changes can be
attributed to management emphasis on the Collection and Examination
programs.† Over the last few years, the Small
Business\Self-Employed Division has implemented reengineering and
organizational changes, and both the Collection and Examination functions continue
to work toward improved workload selection methods.

The level of compliance
activities and the results obtained in many Collection function areas showed a
continued increase.† The use of
collection enforcement tools was greater and enforcement revenue collected
continued to increase (to $48.7 billion), but the total dollar amount of
uncollected liabilities increased to $271 billion.† However, the gap between new account receipts
and closures narrowed slightly during the year.

The overall percentage of tax returns examined
increased by just over 4 percent, and the number of field examiners
increased by just over 9 percent.†
However, the percentage of tax returns examined is still 27 percent
lower than it was in Fiscal Year 1997.

The
number of tax returns of individuals examined increased.† However, 82 percent were conducted via
correspondence examinations, which are usually not as comprehensive as face‑to‑face
examinations.

The
number of corporate tax returns examined decreased 1 percent, after
increasing 71 percent in Fiscal Year 2005.†
However, the number of these examinations has decreased 59 percent
since Fiscal Year 1997.

Continued effort to improve
compliance is important to the integrity of the voluntary compliance
system.† According to a tax gap strategy
document dated September 2006, the tax gap for Tax Year 2001 is estimated at
$345 billion.† The strategy document
provides a broad base on which to address the tax gap but depends on future
budget funding to provide detailed strategy elements.† The Presidentís Budget Proposal for Fiscal
Year 2008 includes an increase of almost 6 percent for Collection and
Examination function enforcement.

WHAT TIGTA RECOMMENDED

Due
to the nature of this review, TIGTA made no recommendations in the report.† However, key IRS management officials
reviewed the report prior to issuance and agreed with the facts and
conclusions.